Eric Durant John Robert Strangfeld - Chairman, Chief Executive Officer, President and Member of Executive Committee Mark B. Grier - Vice Chairman Robert Michael Falzon - Chief Financial Officer and Executive Vice President Charles Frederick Lowrey - Head of Asset Management Business, Executive Vice President, Chief Operating Officer of US Businesses, Chief Executive Officer of Prudential Investment Management, President of Prudential Investment Management and Executive Vice President of Prudential Financial & Prudential Insurance Edward P. Baird - Executive Vice President and Chief Operating Officer of International Businesses

Christopher Giovanni - Goldman Sachs Group Inc., Research Division Steven D. Schwartz - Raymond James & Associates, Inc., Research Division Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division Nigel P. Dally - Morgan Stanley, Research Division Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division Erik James Bass - Citigroup Inc, Research Division A. Mark Finkelstein - Evercore Partners Inc., Research Division Ryan Krueger - Dowling & Partners Securities, LLC Seth Weiss - BofA Merrill Lynch, Research Division Kenneth S. Lee - RBC Capital Markets, LLC, Research Division Joanne A. Smith - Scotiabank Global Banking and Markets, Research Division

Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2013 earnings teleconference. [Operator Instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Eric Durant. Please go ahead.

Thank you, Cynthia. Good morning, and thank you for joining our call. Representing Prudential on today's call are John Strangfeld, CEO; Mark Grier, Vice Chairman; Ed Baird, Head of International Businesses; Charlie Lowrey, Head of Domestic Businesses; Rob Falzon, Chief Financial Officer; and Peter Sayre, Controller and Principal Accounting Officer. We will start with prepared comments by John, Mark and Rob, and then we'll have at your questions. In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements and Non-GAAP Measures of our earnings press release for the third quarter of 2013, which can be found on our website at www.investor.prudential.com. In addition, this presentation may include references to adjusted operating income or to earnings per share or EPS or return on equity or ROE, which are determined based on adjusted operating income. Adjusted operating income is a non-GAAP measure of performance of our Financial Services businesses that excludes certain items. Adjusted operating income is not a substitute for an income determined in accordance with Generally Accepted Accounting Principles, GAAP, and the excluded items are important to an understanding of our overall results of operations. For a reconciliation of adjusted operating income to the comparable GAAP measure, please see our earnings press release on our website. Additional historical information relating to the company's financial performance is also located on our website. John?

Thank you, Eric, and good morning, everyone. Thank you for joining us. We appreciate your interest in Prudential. I'll be brief in order to leave time for Mark and Rob's more expansive comments, as well as for your questions. To sum things up, regarding Q3, and in fact, year-to-date as well, Prudential has never performed better. In comparison to the third quarter of last year, EPS on an adjusted operating income increased 85% this quarter. Excluding the effect of market-driven and discrete items such as DAC unlocking from the result of each period, earnings per share increased by 32% from $1.81 in the third quarter of 2012, to $2.39 in the third quarter of 2013. And on the same basis, our earnings per share for the year-to-date amounted to $6.76. This is an increase of 37% from $4.95 in the first 3 quarters of 2012. Our results thus far this year reflect the step-function increase in both the level of earnings and of ROE. Our focus on the productive deployment of capital, which was contemplated in our ROE objective first articulated 3 years ago, is clearly paying off. The successful execution of the Star and Edison acquisitions in Japan, the emerging success of the Hartford Life purchase and the addition of the large pension deals we've closed late last year are all contributing meaningfully to this year's results. We've also realized strong organic growth across our businesses, consistent with our strong execution. Pricing discipline, expense and risk management and focus have all served us well in building both current results and future opportunities. Importantly, we've also balanced investments in our business with distribution of capital to our shareholders in the form of dividends and share repurchases. That said, our results also reflect certain items that, while very real, do tend…

Thanks, John. Good morning, good afternoon or good evening. Thank you, all, for joining us and we appreciate the fact that we're competing with the Twitter story today. So we're glad you're interested in listening to what we have to say. I'll take you through the results for the quarter, and then I'll turn it over to Rob Falzon, who will cover our capital liquidity picture and our guidance for next year. I'll start with Slide 2, an overview of our financial results for the quarter. On a reported basis, common stock earnings per share amounted to $2.94 for the third quarter based on after-tax adjusted operating income of the Financial Services businesses. This compares to EPS of $1.59 a year ago. After adjusting for market-driven and discrete items in both the current quarter and the year-ago quarter, EPS was up 32%, amounting to $2.39 compared to $1.81. On that basis, pretax earnings for our operating divisions increased 24% for the quarter. This increase is largely the result of organic growth in the base of account values and assets under management, driving higher fees in our U.S. businesses, reflecting both market appreciation and positive net flows over the past year; a greater contribution from investment results in our Retirement business, driven largely by the pension risk transfer business we've put on the books late last year; the contribution of the business we acquired from Hartford in January to our Individual Life results; and continued growth of our International Insurance business, which also benefited from strong investment results in the current quarter; and cost synergies, as we near completion of the Star and Edison integration. On a GAAP basis, we reported net income of $981 million for the current quarter. This includes the net effect of a charge to increase our…

Thanks, Mark. I'd like to give you an update on some key items under the heading of financial strength and flexibility, and then address guidance for 2014. Starting on Slide 25. We continue to manage our insurance companies to levels consistent with what we believe are AA standards. For Prudential Insurance, we manage to a 400% RBC ratio, which we believe gives us some cushion against our AA objective. We began the year with an RBC ratio above 450%. While we don't perform a quarterly bottoms-up RBC calculation, we estimate that our RBC ratio continues to be above 450% at Prudential Insurance after giving effects to The Hartford transaction and other activities in the first 9 months of the year. Prudential of Japan and Gibraltar Life reported strong solvency margins of 728% and 899%, respectively, as of June 30. These are comfortably above our 600% to 700% targets. Looking at the overall capital position for the Financial Services businesses on Slide 26, we calculate our on balance sheet capital capacity by comparing the statutory capital position of Prudential Insurance to our 400% RBC ratio target, and then add capital capacity held at the parent company and other subsidiaries. At the end of last year, prior to funding the Hartford Life acquisition, our on balance sheet capital capacity was roughly $3 billion, of which $1.5 billion to $2 billion was readily deployable. Through the first 9 months of this year, we funded The Hartford acquisition, declared 3 quarterly common stock dividends of $0.40 each, for a total of about $560 million, and repurchased $500 million of our common stock, totaling roughly $1.8 billion of capital deployment and returns of capital. These capital uses were more than offset by excess capital generated within our businesses, resulting in available on balance sheet capital…

Thank you, Rob. Thank you, Mark. And we'd now like to open it up to questions. Operator?

[Operator Instructions] And we will go to the line of Chris Giovanni with Goldman Sachs.

I guess, first question, just on in the quarter, maybe the below the line charge, the $1.7 billion. You talked about it primarily related to lapses. And I think back at the Investor Day in June, when you walked through all the cash flows and MCV scenarios, you talked about lowering the lapse assumptions for those that were outside of the surrender charge period from 10% in 2012 to 9%. So I'm wondering if that's what this charge is related to or if you've done something else in terms of refining assumptions, maybe inside surrender charge period?

Chris, it's Rob Falzon. No, that's on point. What we did is we further updated that base lapse assumption. We brought it down from -- brought it from 9% down to 7%. We also tinkered with the dynamic lapse assumption and the sensitivity of customer behavior to the in-the-money-ness of their policy, and the combination of those 2 are the primary drivers to the $1.7 billion that you're looking at.

Okay. And then the dynamic lapse assumption that moved from 5 4 to about where?

Well, that's a very difficult thing to calibrate because it's a slope, so it sort of depends on where on the curve you are. But the order of magnitude of change would be sort of in the same range as what you're looking at on the base lapse assumption.

Okay. And then, I guess, regarding variable annuities. I mean, you've sort of stabilized here that the $2.4 billion, $2.5 billion range. We did see a competitor to a reinsurance arrangement. I'm just wondering your thoughts, given the distribution and how strong of a distribution channel you guys have, if that's something you would consider given the demand still appears to be there kind of across the industry for VA products.

Sure. Chris, this as Charlie. We think that those kind of transactions are all about diversifying risk. And we review our risk management strategies for our living benefit guarantees on an ongoing basis. And while we've looked at reinsurance and we'll continue to look at Prudential reinsurance transactions up until this point, they haven't been as compelling to us. So we approach the issues in a slightly different way. First, we lowered sales to an appropriate level relative to our overall business mix, so we're down about 60% from year-over-year. Second, we lowered the risk profile of our existing VA product, as Mark described. And third, we've diversified and are continuing to diversify our product range into other products with different or complementary risk profiles. So for an example, we launched our PDI product earlier this year, which has no equity risk because it's based on fixed income. So we'll continue to look for ways to add products to diversify risk further, as well as continue to look at reinsurance where it might make sense both to our existing book and on a prospective basis.

Okay. One last quick one, then I'll get back in the queue. Just, Mark, you guys, you accepted the non-bank SIFI designation. So wondering if you can give us any kind of additional comments in terms of maybe the decision why not to move ahead with legal action and then any other kind of updated thoughts or developments here over the past couple of months?

Yes. The decision not to pursue this issue in court was a business judgment that was made by management and the board. And we believe it's the best decision for the company. We, by the way, I would say, have a fundamental difference of opinion with respect to the liquidity basis for designation. However, we also believe that, moving on is the right thing for us to do and that we will now continue to play a constructive role in the development of things like capital standards and the supervisory framework, and so we're moving on with it. In terms of where we stand, our supervisory, regulatory and capital regimes are all evolving. We'll be fully cooperative and responsive with respect to the supervision by the Federal Reserve and we'll seek opportunities to provide constructive input on issues that are important, like capital standards.

Our next question comes from the line of Steven Schwartz with Raymond James & Associates. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: A couple of things. First, I wanted to again follow-up on the lapse assumption change and the discussion of GAAP versus economics. The returns that were assumed under GAAP, that's what came out of your stochastic modeling?

Steven, it's Rob Falzon. No, on the -- our -- unless we're talking about the GMWB, to be clear. Our GMWB falls under FAS 157/133. Under that accounting, we use risk neutral accounting for it, so it's not stochastic modeling. It's actually a market-neutral view of that liability that uses market rates for returns as opposed to best estimates for return. So by way of example, Mark highlighted them in his talking points upfront, that's the calculation that has equities earning 75 basis points, fixed income earning 2.25 over the life for a blended return on the account values of 1.5%. So it's not a stochastic modeling of expected account values but rather the risk-neutral view of that. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. I'll take this up Neal and where those numbers come from, I guess. Quickly, just looking at the guidance, just a couple of questions. Is share repurchase assumed in this?

We don't provide guidance on share repurchases specifically, Steven. I think, as you know, our board authorized $1 billion of stock buybacks in June of this year. That extends from June of next year and out of that $1 billion, we implemented $0.25 billion in the third quarter. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. And then, one more, if I may. The Japanese consumption tax, how much do you think that's going to affect earnings for 2014?

This is Ed Baird responding. Not by a lot, because the consumption tax is applicable to third party. And third party is a smaller portion of our distribution than it is for some other companies that you may be monitoring on this. So we don't anticipate any material impact next year.

Our next question comes from the line of Nigel Dally with Morgan Stanley.

Just to get some of the annuity lapses, [ph] I understand this is a GAAP charge, but any implications for your statutory results, either for this quarter or for year end, cash flow testing?

Nigel, it's Rob. It's a good question. There is a statutory impact as a result of the charge that we took. However, that impact is entirely offset within our PrucoRe entity where these writers reside by the gains that we have from the macro interest rate hedge we have within that entity. So as a result of that, there will be no capital capacity impact as a result of this assumption update.

Okay. Got it. Second, just in looking at the results. Obviously, one of the key areas of the upside was the non-coupon investments at Gibraltar. So I was just hoping to get some color regarding the size of the equity in real estate portfolio housed in Japan? And if we go back longer over the time frame, just beyond the last 4 quarters, what's sort of like a normalized return you would expect to generate from those investments?

Nigel, it's Eric. Let me deal with the normalized return aspect of your question. The truth is we don't know what a normal return there is. So let me just give you some numbers. In all of last year, the contribution of income on non-coupon investments at Gibraltar was $97 million. For the year-to-date through September -- and in the third quarter, by the way, it was $71 million. For the year-to-date through September, it was $176 million. I think, you're on your own in coming up with what you would consider a normal level of income from those investments to be. As for the size of the portfolio, basically, are 3 different pieces here. There are equities that we own that generate dividend income but the equities themselves are not mark-to-market. There is directly-owned real estate and then there are fund investments generally in the form of a limited partnership. And the vast majority of the growth from 2012 to, so far, in 2013 has come from the fund investments and reflects a very favorable market conditions, both equities and real estate in Japan.

And if you were to put those 3 buckets together, what will be -- can you provide the aggregate size or is that something you haven't disclosed?

The aggregate size at Gibraltar, I don't think, is a very meaningful number, frankly, but I'll answer the question. It's about $3 million.

Our next question comes from the line of Jimmy Bhullar with JPMorgan. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: So just another question on, first, the VA charge, just wondering how you're thinking of the charge. Is it more because you've underestimated the economic liability? Or it seems like it's more just because of very conservative market assumptions embedded in U.S. GAAP. And then, if the market does perform better than what's embedded in the charge, would some of that charge reverse over time? So that's the first question. And then, secondly, for Charlie, on the disability, the loss that you show, if we adjust for the actuarial assumption change, I think was around 96%, which is worse than where it was before. So maybe just talk about what you're seeing in the disability business, what drove the deterioration there and just progress on your repricing initiatives.

So Jimmy, it's Rob. I'll answer the first question and turn it over to Charlie. In terms of our view of assumption updates, there's an accounting outcome and that's programmatic, and I think we've described for you how that math is done and you could place your own judgments as to how conservative that is. We gave you the reinvestment rates. They result in particularly large claims, way out in the future when the account values grow at those very modest levels. And then those claims are discounted back at a LIBOR curve or the swap curve at a very low rate, which reflects today's rates. When we look at our own expected case modeling for purposes of our anticipated cash flows, as a result of the assumption update, we believe there's been a significant increase in the present value of our cash flows associated with this book of business. And so that's kind of our economic lens on that. In terms of the second part of your question, which is the reversion, yes, to the extent that through the 1 33, it's going to always be marked at market through the swap curve; to the extent that we actually realize better returns than are forecasted, will result in reversions going toward us at points in the future.

So just to be clear, the economics are better when lapses go down but the accounting is worse. It's a point we made on Investor Day, and your question is right on point. Charlie?

Okay. Well, let me answer Jimmy's second question, which has to do with disability and the benefit ratios. So the disability ratio this quarter was -- on a normalized basis, was 96% versus the year-ago of 96.5%. So we've come down slightly. It is worse than it was last quarter, which was 93.2%. Now we said the process wasn't going to be linear and that we're going to kind of grind the ratio back down, is the words we've been using, and that's exactly what we're doing. But if you look at incidents, severity and termination for a moment, third quarter to third quarter where we did see improvement, incidents decreased, severity was slightly higher but terminations increased. And I'll come back to termination in a second because that's an important part of the equation. Third quarter and second quarter, we have both incidents and severity both increase somewhat, severity more than incidents, which more than offset the increase in terminations. So you did have a little bit of a backstep there. But I think the issue and the important issues, we've been working really hard on claims management. And the terminations in both cases have gone up. So we're dealing with the problem. We're about 1/3 of the way through it at this point. We're repricing certain cases. We're letting others lapse and we're working on the terminations themselves, which are showing material improvement. So we'll get there but it isn't going to be linear. But if you look on a sort of 4-quarter rolling average, I think you'll see improvement as we go forward.

Our next question will come from the line of Erik Bass with Citigroup.

Just a question on the International business, if you can talk a little bit about your outlook for sales? And are you expecting growth to reaccelerate in 2014 as some of the noise from the tough comps in the single premium sales subsides?

Yes. Let me explain a little bit about what happened in this quarter and then might lay a foundation from which you can drive some of your own extrapolations. So the overall drop was driven, as Mark pointed out, primarily by what happened in the bank. And that was a targeted reduction. The single premium product, which dominated last year much of the bank distribution of the roughly $1.4 billion last year, about $900 million of it was single premium. That product can work pretty well in a flat or rising interest rate environment, but in a dropping interest rate environment, it's not a product we want to be in. And that's why, as you'll recall, over the earlier course of the year, we put in a series of constraints, which culminated in ultimately our shutting the product down. So that's a big number that has dropped out of the overall production. If you then switch over to the -- and I think, by the way, within bank channel, you will see growth over time, but it will take time for that recurring premium growth to make up for the loss in the single premium. So that drop was precipitous and intended, whereas the growth equally intended would be more gradual. If you look over on the Life Consultant side, the flat sales is actually extremely good news for the reason that Mark pointed out. We were able to achieve essentially the same sales in this quarter as we did this time last year through Life Consultant, but with 2,400 fewer salespeople, which allows us to reduce agencies, real estate, et cetera. So that's about a 20% reduction in the headcount, which was fully made up for about equally between productivity measured in number of sales and the average premium.…

That's helpful. And then you mentioned some of the sales of U.S. dollar products have declined a bit given the movements in the currency. So are you seeing customers shift to yen-denominated products? And then can you just talk about how you're positioned in the yen-denominated market and whether you earn the same margins on yen-denominated products as you do on the dollar-denominated?

Yes. The yen-denominated product, at least on the retirement income side, is very common product in the small business market, which is a significant market for our life planners, particularly some of our more experienced and successful life planners. The dollar-denominated one is used more traditionally in the individual market for the purposes evidenced by its name, retirement income. So you get a number of factors here. Part of it is the currency factor. But it's difficult to isolate that because there has also been rate increases on both currency-based products over the last year, 1.5 years. So it's a little hard to know precisely what might be driving it. But I will point out that the dollar-denominated retirement income has been the lead product in Life Planners, specifically in POJ, for probably 5, 6 years now. And over that period of time, you will have seen that the currency rate has fluctuated rather dramatically. So I wouldn't attribute too much significance to just a single quarter's movement in the currency. I suspect you will see this retain its position as a lead product for POJ regardless of currency movements.

Okay. And any comment just on the relative margin between yen and dollar-denominated?

They tend not to -- over time, over a cycle of movements on the interest rates, they tend to be priced in relatively the same region, so it has a lot more to do with what's going on in at any one particular time in the capital market than it does, necessarily, what we're targeting in our pricing.

Our next question comes from the line of Mark Finkelstein with Evercore.

Rob, you talked in your presentation about spending $1.8 billion between Hartford, buybacks, dividends, et cetera, and total available capital grew by about $500 million, so that gets you to kind of $2.3 billion, if you will, of implied capital generations, which annualizes to somewhere around $3 billion. And I guess, my first question is, is that the right way to think about capital generation going forward? Were there things in this particular first 9 months that kind of would influence that one way or the other? What is your outlook on '14?

Well, Mark, let me try to answer your question without giving an outlook on '14, and tell you how I sort of think about the framework for capital capacity and capital generation. Start with the net income of the business. So if you look through -- and adjust that for the noneconomic things. So we always start with our capacity that we had at the end of last year, that was around $3 billion. We had net income, before FX remeasurement and NPR, of about $2.2 billion, if you did that calculation. And then deduct from that the capital deployment things that I called out to you, which was the combination of dividends, the stock repurchases and The Hartford acquisition. As a result of that, you had the difference between those 2 is about $0.5 billion worth of positive capital net generation. There are a number of other things that run through for the first 9 months of the year. However, all those other things wash each other out. And so when you look at where we were at the end of last year and where we are as of September, it's about that $0.5 billion difference between what we generate in earnings and what we redeployed in the 3 ways that I described. There are times when we have other things moving through capital capacity but that's not creating a lot of noise in this particular year.

Okay. Maybe just moving to guidance a little bit. You just -- you kind of framed out $8.65 as a reasonable starting point. The low end of the range is $8.75. And I guess what I'm interested in is there -- are there any businesses that as we look out to '14, where if you kind of eliminate kind of the non-coupon investments or favorable mortality or kind of some of the non-kind-of-trendable stuff, putting that to the side, are there any of the businesses that you're expecting kind of pressured earnings relative to what we've seen in '13 kind of, in a sense, net earnings to go down, if you will?

Well, in our guidance, we're not providing anything specific at a business level, Mark, so I actually can't respond to your question directly. Just to be clear, the starting number that I gave you, we did eliminate the excess non-coupon and the excess mortality. And so that's out of the numbers on an enterprise level basis. But the guidance we're providing is at an enterprise level without bringing it down any further.

Okay. One more if I just may. What was the actual statutory charge on lapse? I think you alluded to it, saying it was offset by the macro hedge, but what was the actual impact?

So if you look at the -- recall that our account -- statutory accounting for this particular product follows what we call a modified GAAP, so it's not traditional stat. And so if you look at the change in the hedge target, that would have been about $1.4 billion.

And that was fully offset by macro?

I'm sorry?

And that was fully offset by the macro hedge?

That's the reserve charge. When you look at the capital implications of that, you have to tax effect it. And then we have to add to that some additional risk capital that we had to put in. So the net capital number, absent that reserve charge, that's what ran through the P&L in the statutory books, would have been about roughly $1 billion. And yes, it was $1.1 billion and it was entirely offset by the gains that we had on the macro hedge.

In a rising equity and interest rate environment? I'm just confused about how the macro hedge would have offset that?

It's a cumulative gain on the macro hedge, not just a quarter's gain. So it was the gain that we had in there that we never count as part of our capital capacity. And generally, you have -- it's a protection against rising interest rates, so it gains as rates rise.

It's the famous under hedge.

Our next question will come from the line of Ryan Krueger with Dowling & Partners. Ryan Krueger - Dowling & Partners Securities, LLC: The Individual Annuity's core ROA was up to about 102 basis points in the quarter. If the equity market kind of follows the path in your 2014 guidance assumption, should we think about that as a sustainable type of margin going forward?

I think so. Because if you -- this is Charlie, by the way. If you look at the drivers of that, it was really an increased margin from increasing fees and less increasing expenses. And so that drove the ROA, along with a lower take [ph] factor. So the combination of that and if you extrapolate out our assumption, should be that, that's a sustainable margin going forward. Ryan Krueger - Dowling & Partners Securities, LLC: Okay. And then, on statutory cash flow testing, as we head into the end of the year, I guess, last year, you added a pretty substantial amount for your long-term care business, I guess, relative to its modest size. With interest rate up in 2013, could we see some reversal of that reserve add from last year?

Ryan, it's Rob. I'm not going to speculate on what interest rates will do in the future. What I will tell you is that when you look at the -- I think, I can give you the rates that we set our AAT at last year, and then you can make your own forecast as to what that may do in the future. You've just got to give me 1 second to run that down. I would say, the rates on -- that we set at the time that we set up the reserve for long-term care were significantly below today's rates. I'll have to -- rather than scamp around now and try to find it, I can follow-up with you and give you that number. Ryan Krueger - Dowling & Partners Securities, LLC: Okay. And I guess -- I'll follow-up.

Actually, let me just follow-up, Ryan, when we set the rates -- as of September, where we set the rates a year ago versus today, we're about 56 basis points higher than when the LRR was established last year. Specific answer to your question.

There are a lot of moving parts in this, but the gist of your point is that the directional impact of higher rates is good. But again, there are a lot of moving parts.

Our next question comes from the line of Seth Weiss from Bank of America Merrill Lynch.

And just to follow-up on the run rate and annuities, I understand that you don't give sales targets in annuities. If just thinking about that ROA is sustainable, it's fair to say that we're assuming that today's level of sales is a good base level, is that correct?

I think what we'd say there is that we're comfortable with the level of sales we have today and sort of leave it at that, right? We wanted to reduce the level of sales, and we did because we think about a number of different aspects when we think about level of sales. One is the product and making sure it's profitable and we've taken steps in that direction. Second is to ensure that it still fulfills the customer need and it appears to be doing so. And the third is the overall percentage of business mix. And Mark and John talked a lot about business mix overall. And that can be a governing factor. So between those 3 variables, we come up with what we like to think of as a level of sales which we'd be comfortable with, and we think we're comfortable with the level of sales we have now.

Okay. Great. And just a follow-up question in terms of the share repurchase authorization and understanding that you're not going to give any specific buyback guidance. With you no longer formally challenging the SIFI designation, from a process standpoint, is there anything different in this quarter from last quarter in terms of being able to go into the market and repurchase shares?

Well, capital planning, broadly, will be part of the supervision process with the Federal Reserve, yes.

And in terms of this quarter, even though there's no formal restriction yet, any action will need to have a discussion with the Fed, is that correct?

I would characterize it more the way I just said it, which is pretty general and that is that capital planning is one of the issues that will be part of our supervisory process. I don't want to be more specific than that.

Our next question comes from the line of Eric Berg with RBC Capital Markets.

This is Kenneth Lee filling in for Eric Berg. I just have a question on pension transfers. We're seeing an environment of rising equity rates. Equity markets is presumably helping out pension funding levels for corporations. So just curious if, on balance, you guys are seeing more or less interest among corporate clients for pension transfers?

Sure. It's Charlie. Clearly, the funding ratios have gotten better. If you look at the latest Mercer study, you see that the average funding ratio is probably around 91% or so, with interest rates and equity markets rising. But I think it's fair to break the market down into 3 different segments. And the first is what we call 0 to $1 billion, maybe 0 to $2 billion. And that's mainly a cash market. And there's always a certain number of these transactions that are done year in and year out. And we have seen a slight uptick in activity here but this is pretty much business as usual. And there are lots of competitors in this space, especially in the 0 to $1 billion range, so I'd say a little bit more here but more or less business as usual. Then you get to $2 billion to $4 billion range, there's definitely more activity in this range. There are more conversations taking place with clients, and there's a lot more consultant activity here as well. And this is either a cash or, at the upper end of the range, kind of an in-kind market so there are less competitors here, but we're definitely having more conversations in this range. And then finally you get to the jumbo range, which is what we characterize as $4 billion and above. And here, what I would say is that we're having the same number of conversations but the intensity of those conversations and specificity of those conversations has increased. Now as we've always said, these will be episodic and they have a very long lead time, so conversations are absolutely happening. And here, there are far few players in the market. So I think you can segment it into 3 different areas but, in general, I think there are more conversations taking place, and at the upper end of the market the intensity has increased.

Our last question will come from the line of Joanne Smith with Scotia Capital.

Two questions. The first one is on the Full Service Retirement business. I noticed that you had a large case win during the quarter. And I do recall you expressing some disinterest in this business going forward, given the competition and the pressure on fees. So I'm wondering if you've had either a change of heart or if conditions have gotten better?

Okay. We have not had a change of heart in terms of profitability. I think the conditions have gotten better. I think, your -- and you recall -- your recollection is correct in that 2 or 3 years ago, we expressed some concern over the pricing in the industry and we pulled back and, in fact, had negative lows for a number of quarters, and that, I think, reflects the discipline we showed. But what we're seeing in this market, it's interesting, is more RFP activity in part because we think some of the HR departments are less focused on health care going forward. They've kind of looked at that and now are refocused on their plans. So we see more RFP activity, which is, we think, real. In other words, not as many check bids in the marketplace, and so there's a little more plan turnover. What I'd also say is that we've seen some price stability in the marketplace. Pricing was going down for a period of time, it seems to have stopped as plan sponsors realize they can only squeeze so much out of a rock before they start losing in service. And so we have -- what we've seen is that we are not necessarily the low bid and we are still winning some plans because they've gone back to looking at service and quality. Now you can't be way out of line, but you can -- you don't have to necessarily be the lowest price in order to win the business. Service and quality are absolutely factors that are coming back into play. So we're not going to win every case. We still have our price discipline, but there are cases that we are winning and the pipeline looks pretty good going forward.

And are you talking about the large case market?

Large and mid-case market.

Large and mid-case. Okay. And then just for Mark, I've been reading a little bit about the language coming out of Washington concerning the Volcker Rule. And it sounds like it's going to be a lot more tougher than maybe some Wall Street executives think. I'm wondering, have you been able to assess what you've been hearing in Washington about how the Volcker Rule could potentially impact life insurers, especially their prospective hedging activity?

Well, the short answer to that is no. This is still very much evolving and there's a lot of input flying toward Washington about the consequences of a number of aspects of the Volcker Rule. And we don't have a very good picture at this point of what that might mean for us. However, hedging activities are core to our business. And these are not proprietary trading type activities that would be the target at least of the spirit of the Volcker Rule. We use derivatives to reduce risk, not to increase risk.

Mark, do they understand the whole issue of the derivatives liability? Because it seems to me that the Feds don't understand the life insurance business and the whole complexity that we've been discussing on this call about the VA charge, I think, it would really confuse the Fed.

Well, certainly, the complexity and lack of transparency, combined with volatility and size of the embedded derivative liability in the Annuity business is important. I would say that we have opportunities to work hard on explaining this and focusing on the economics versus the accounting, and working with the regulators to get pointed in the right direction around a sensible economic solution to thinking about risk and capital.

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